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GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION

Mark D. Engsberg
Karl Finley
Sharon Fischlowitz
Jonathan Flanders
Lisa Florey
Robert A. Frame
John E. Gisselquist
Russell L. Gray III
Frederick K. Grittner
Victoria L. Handler
Halle Butler Hara
Lauri R. Harding
Heidi L. Headlee
James Heidberg
Clifford P. Hooker
Marianne Ashley Jerpbak
David R. Johnstone
Andrew Kass
Margaret Anderson Kelliher
Christopher J. Kennedy
Anne E. Kevlin
John K. Krol
Lauren Kushkin
Ann T. Laughlin
Laura Ledsworth-Wang
Linda Lincoln
Theresa J. Lippert
Gregory Luce
David Luiken
Frances T. Lynch

Anne Welsbacher
Eric P. Wind
Lindy T. Yokanovich
XV
CO-MAKER
One who becomes obligated, an obligor, under a
negotiable instrument—such as a check or
promissory note—by signing his or her name
along with the name of the original obligor,
thereby promising to pay on it in full.
A co-maker is a type of accommodation party,
who is someone who has signed a commercial paper
to aid someone wishing to raise money on it. An
accommodation party lends his or her name to
another person and makes a promise to pay the bill
or note when it is due if the other person defaults.
COMBINATION
In criminal law, an agreement between two or
more people to act jointly for an unlawful purpose;
a conspiracy. In patent law, the joining together of
several separate inventions to produce a new
invention.
An illegal
COMBINATION IN RESTRAINT OF TRADE,
defined under the
SHERMAN ANTI-TRUST ACT,
is one in which the conspirators agree expressly
or impliedly to use devices such as
PRICE-FIXING
agreements to eliminate competition in a

either foreign or domestic, based on public policy
rather than legal mandate.
In
COMITY, an act is performed to promote
uniformity, limit
LITIGATION, and, most impor-
tant, to show courtesy and respect for other
court decisions. It is not to be confused with full
faith and credit, the constitutional provision
that various states within the United States must
C
(cont.)
1
recognize the laws, acts, and decisions of sister
states.
Comity of nations is a recognition of funda-
mental legal concepts that nations share. It stems
from mutual convenience as well as respect
and is essential to the success of international
relations. This body of rules does not form part
of
INTERNATIONAL LAW; however, it is important
for PUBLIC POLICY reasons.
Judicial comity is the granting of reciprocity
to decisions or laws by one state or jurisdiction
to another. Since it is based upon respect and
deference rather than strict legal principles, it
does not require that any state or jurisdiction
adopt a law or decision by another state or
jurisdiction that is in contradiction, or repug-

business or commercial exchanges in any and all
of its forms between citizens of different states,
including purely social communications between
citizens of different states by telegraph, telephone,
or radio, and the mere passage of persons from
one state to another for either business or
pleasure.
Intrastate, or domestic, commerce is trade
that occurs solely within the geographic borders
of one state. As it does not move across state
lines, intrastate commerce is subject to the
exclusive control of the state.
Interstate commerce, or commerce among
the several states, is the free exchange of
commodities between citizens of different states
across state lines. Commerce with foreign
nations occurs between citizens of the United
States and citizens or subjects of foreign govern-
ments and, either immediately or at some stage
of its progress, is extraterritorial. Commerce
with Indian tribes refers to traffic or commer-
cial exchanges involving both the United States
and American Indians.
The commerce clause was designed to
eliminate an intense rivalry between the groups
of those states that had tremendous commercial
advantage as a result of their proximity to a ma jor
harbor and those states that were not near a
harbor. That disparity was the source of constant
economic battles among the states. The exercise

commerce. However, that right must be exer-
cised in a manner that does not interfere with, or
place a burden on, interstate commerce, or else
Congress may regulate that area of domestic
commerce to protect interstate commerce from
the unreasonable burden. Although a state may
not directly regulate, prohibit, or burden inter-
state or foreign commerce, it may incidentally
and indirectly affect it by a
BONA FIDE, legitimate,
and reasonable exercise of its police powers.
States are powerless to regulate commerce with
Indian tribes.
Although Congress has the exclusive power
to regulate foreign and interstate commerce, the
presence or absence of cong ressional action
determines whether a state may act in a parti-
cular field. The nature of the subject of com-
merce must be examined in order to decide
whether Congress has exclusive control over
it. If the subject is national in character and
importance, thereby requiring uniform regula-
tion, the power of Congress to regulate it is
plenary, or exclusive.
It is for the courts to decide the national or
local character of the subject of regulation, by
balancing the national interest against the
STATE
INTEREST
in the subject. If the state interest is

has minima l effect.
However, where there is an obvious com-
pelling state interest to protect, state regulations
are constitutional. Restrictions on the width and
weight of trucks passing through a state on its
highways are valid, because the state, pursuant
to its
POLICE POWER, has a legitimate interest in
protecting its roads.
Where the subject is one in which Congress
or the state may act, a state may legislate unless
Congress does so. Thereafter, a valid federal
regulation of the subject supersedes conflicting
state legislative enactments and decisions and
actions of state judicial or administrative bodies.
If Congress has clearly demonstrated its
intent to regulate the entire field, then the state is
powerless to enact subsequent legislation even if
no conflict exists between state and federal law.
This type of congressional action is known as
federal
PREEMPTION of the field. Extensive federal
regulation in a particular area does not neces-
sarily resu lt in federal preemption of the field. In
determining whether a state may regulate a given
field, a court evaluates the purpose of the federal
regulations and the obligations imposed, the
history of state regulation in the field, and the
LEGISLATIVE HISTORY of the state statute. If Con-
gress has not preempted the field, then state law

of business i n order to distinguish where inter
state commerce ends and local commerce
begins. If activities that are intrastate in
character have such a substantial effect on
interstate commerce that their control is essen-
tial to protect commerce from being burdened,
Congress may not be denied the power to
exercise that control.
In 1995, for the first time in nearly 60
years, the U.S. Supreme Court held that
Congress had exceeded its power to regulate
interstate commerce. In Un ited States v. Lope z,
514 U.S. 549, 115 S. Ct. 1624, 131 L. Ed. 2d
626 (1995 ), the Court ruled 5–4thatCongress
had exceeded its commerce clause power in
enacting the Gun-Free School Zones Act o f
1990 (18 U.S.C. § 921), which prohibited the
POSSESSION of firearms within 1,000 feet of a
school.
In reaching its decision, the Court took the
various tests used throughout the history of the
commerce clause to determine whether a federal
statute is constitutional and incorporated them
into a new standard that specifies three catego-
ries of activity that Congress may regulate under
the clause: (1) the channels of interstate
commerce, (2) persons or things in interstate
commerce or instrumentalities of interstate com-
merce, and (3) activities that have “a substantial
relation to interstate commerce … i.e., those

Md. 1968), t hat the movement of
AIR POLLUTION
across state lines from Maryland to Delaware
constituted interstate commerce that is subject
to congressional regulation. The
PLAINTIFF,
the United S tates, sought an injunction under
the federal
CLEAN AIR ACT (42 U.S.C.A. §§ 7401
et seq. [1955]) to prevent the operation of
the Maryland Bishop Processing Company,
a fat-rendering plant, until it installed devices
to eliminate its em ission of noxious odors.
The
DEFENDANT plant owners argued, among
other contentions, that Congress was powerless
to regulate their business because it was clearly
an intrastate activity. The court disagreed.
Foul-smelling air pollution adversely affects
business conditions, depresses property values,
and impedes industrial development. These
factors interfere with interstate commerce ,
thereby bringing the plant within the scope
of the provisions of the federal air-pollution
law.
The power of Congress to regulate com-
merce also extends to contracts that substan-
tially relate to interstate commerce. For exam-
ple, Congress may regulate the rights and
liabilities of employers and employees, as labor

Interstate commerce also includes the
transmission of intelligence and information—
whether by telephone, telegraph, radio, television,
or mail—across state lines. The transmission
of a message between points within the same
state is subject to state regulation.
Agencies and Instrumentalities
of Commerce
Congress, acting pursuant to the commerce
clause, has the exclusive power to regulate the
agencies and instrumentalities of interstate and
foreign commerce, such as private and common
carriers. A bridge is an instrumentality of inter-
state commerce when it spans
NAVIGABLE WATERS
or is used by travelers and merchandise passing
across state lines. Navigable waters are instru-
mentalities of commerce that are subject to the
control of federal and state legislation. A bridge
over a navigable stream located in a single state
is also subject to concurrent control by the
state.
An office used in an interstate business is
an instrumentality of interstate commerce.
Railroads and tracks, terminals, switches, cars,
engines, appliances, equipment used as compo -
nents of a system engaged in interstate traffic,
and vessels (including ferries and tugs) are also
subject to federal regulation. Warehouses, grain
elevators, and other storage facilities also might

shipments is necessarily so related to the
interstate co mmerce as to come within the
regulating power of Congress. The original
construction of a factory building does not
constitute interstate commerce, even though the
factory is used after its construction for the
manufacture of goods that are to be shipped in
interstate commerce and even though a sub-
stantial part of the material used in the building
was purchased in different states and transported
in interstate commerce to the location of the
plant.
Under some circumstances, however, busi-
nesses—such as advertising firms, hotels, res-
taurants, companies that engage in the leasing
of
PERSONAL PROPERTY, and companies in the
entertainment and sports industries—may be
regulated by the federal government. A business
that operates primarily intrastate activities, such
as local sporting or theatrical exhibits, but
makes a substantial use of the channels of
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
COMMERCE CLAUSE 5
interstate trade, develops an interstate character,
thereby bringing itself within the
AMBIT of the
commerce clause.
Discrimination as a Burden
on Commerce

foreign corporation with retail stores in the
state to collect a state
SALES TAX on the sales it
made from its mail-order houses located
outside the state to customers within the state.
The corporation contended that this statute
discriminated against its operations in inter-
state commerce. Other out-of-state mail-order
houses that were not licensed as foreign
corporations in the state did not have to collect
tax on their sales within the state. The court
decided that the state could impose this burden
of tax collection on the corporation because
the corporation was licensed to do business in
the state and it enjoyed the benefits flowing
from its state business. Such a measure was
not an unreasonable burden on interstate
commerce.
A state may not prohibit the entry of a
foreign corporation into its territory for the
purpose of engaging in foreign or interstate
commerce, nor can it impose conditions or
restrictions on the conduct of foreign or interstate
business by such corporations. When intrastate
business is involved, it may do so.
Similarly, a private person who conducts a
business that has a significant effect on inter-
state commerce in a discriminatory manner is
not beyond the reach of lawful congressional
regulation.

commerce clause
JURISPRUDENCE when it held that
the commerce clause forbids states from taxing
income received by nondomiciliary corporations
for unrelated business activities that constitute a
discrete business enterprise (Hunt-Wesson, Inc. v.
FRANCHISE Tax Bd. of Cal., 528 U.S. 458, 120 S. Ct.
1022, 145 L. Ed. 2d 974 [ 2000]).
Hunt-Wesson Inc., a California-based cor-
poration, was the successor in interest to the
Beatrice Companies Inc., the original taxpayer
in the case. During the years in question,
Beatrice was domiciled in Illinois but was
engaged in the food business in California and
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
6 COMMERCE CLAUSE
throughout the world. For the purposes of this
lawsuit, Beatrice’s unitary operations consisted
only of those corporate family business units
engaged in its global food busine ss. From 1980
to 1982, Beatrice also owned foreign subsidiar-
ies that were not part of its food operations but
that formed a discrete business enterprise. For
the purposes of this lawsuit, the parties
stipulated that these foreign subsidiaries were
part of the company ’s non-unitary business
operations.
These non-unitary foreign subsidiaries paid
dividends to Beatrice of $27 million for 1980,
$29 million for 1981, and $19 million for 1982,

that Beatrice received from its non-unitary
subsidiaries.
Beatrice responded by filing suit in Califor-
nia state court to challenge the constitutionality
of the law. The trial court struck down Section
24344 on the ground that it allowed the state
to indirectly tax non-unitary business income
that the commerce clause prohibits from being
taxed directly. The California Court of Appeals
reversed, and Hunt-Wesson, having intervened
in the lawsuit as Beatrice’s successor-in-interest,
appealed.
In a unanimous opinion written by Justice
STEPHEN BREYER, the U.S. Supreme Court struck
down California Revenue and Taxation Code
Section 24344. In reducing an out-of-state
company’s tax deduction for interest expenses
by an amount that is equal to the interest
and dividends that the company receives
from the unrelated business activities of its
foreign subsidiaries, Breyer wrote, Section 24344
enables California to circumvent the federal
Constitution.
States may tax a proportionate share of the
income of a nondomiciliary corporation that
carries out a particular business both inside and
outside the state, Breyer observed. But states
may not, without violating the commerce clause,
tax nondomiciliary corporations for income
earned from unrelat ed business activities that

as the storage or withdrawa l from storage of
imported motor fuel, even though it is to be
used in interstate commerce.
Although radio and television broadcasting
may not be burdened by state-privilege taxes as
far as they involve interstate commerce,
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
COMMERCE CLAUSE 7